Trailing twelve-month data shows us that Darien Business Development Corp’s (TSXV:DBD.H) earnings loss has accumulated to -CA$105.60K. Although some investors expected this, their belief in the path to profitability for Darien Business Development may be wavering. The single most important question to ask when you’re investing in a loss-making company is – will they need to raise cash again, and if so, when? This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that Darien Business Development is spending more money than it earns, it will need to fund its expenses via external sources of capital. Darien Business Development may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question. Check out our latest analysis for Darien Business Development
What is cash burn?
Darien Business Development currently has CA$286.87K in the bank, with negative cash flows from operations of -CA$164.31K. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The measure of how fast Darien Business Development goes through its cash reserves over time is called the cash burn rate. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Darien Business Development operates in the alternative carriers industry, which delivered positive earnings in the past year. This means, on average, its industry peers operating are profitable. Darien Business Development runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Darien Business Development need to raise more cash?
Darien Business Development has to pay its employees and other necessities such as rent and admin costs in order to keep its business running. These costs are called operational expenses, which is sometimes shortened to opex. In this calculation I’ve only included recurring sales, general and admin (SG&A) expenses, and R&D expenses occured within they year. In Darien Business Development’s case, its opex fell by 25.00% last year, which may signal the company moving towards a more sustainable level of expenses. If opex is maintained at the current level of CA$88.42K, then given the current level of cash in the bank, Darien Business Development will not need to come to market any time within the next three years. Even though this is analysis is fairly basic, and Darien Business Development still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
Next Steps:Darien Business Development’s declining opex growth isn’t a good thing or a bad thing. It merely means the company will run down its cash reserves more slowly but also reinvest less in the business. This cash burn analysis should give you some colour on the company’s cash position, however, keep in mind there are other non-operational expenses which we have not incorporated. Opex is only one side of the coin. I recommend also looking at revenues in order to forecast when the company will become breakeven and start producing profits for shareholders. Keep in mind I haven’t considered other factors such as how DBD.H is expected to perform in the future. You should continue to research Darien Business Development to get a better picture of the company by looking at:
- Historical Performance: What has DBD.H’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Darien Business Development’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.